Covid-19 relief aid was the greatest opportunity for graft in the nation’s history. The Associated Press called it The Great Grift, saying:
Fraudsters used the Social Security numbers of dead people and federal prisoners to get unemployment checks. Cheaters collected those benefits in multiple states. And federal loan applicants weren’t cross-checked against a Treasury Department database that would have raised red flags about sketchy borrowers.
Criminals and gangs grabbed the money. But so did a U.S. soldier in Georgia, the pastors of a defunct church in Texas, a former state lawmaker in Missouri and a roofing contractor in Montana.
All of it led to the greatest grift in U.S. history, with thieves plundering billions of dollars in federal COVID-19 relief aid intended to combat the worst pandemic in a century and to stabilize an economy in free fall.
The AP’s back of the envelop calculations estimate more than $280 billion was stolen outright, while $123 billion more was lost to waste or misspent. The total of these two numbers is $403 billion, or nearly 10% of the $4.2 trillion appropriated in Covid relief aid. Many experts believe what has been uncovered so far is just the tip of the iceberg.
That number is certain to grow as investigators dig deeper into thousands of potential schemes.
Investigators and outside experts say the government, in seeking to quickly spend trillions in relief aid, conducted too little oversight during the pandemic’s early stages and instituted too few restrictions on applicants. In short, they say, the grift was just way too easy.
“Here was this sort of endless pot of money that anyone could access,” said Dan Fruchter, chief of the fraud and white-collar crime unit at the U.S. Attorney’s office in the Eastern District of Washington. “Folks kind of fooled themselves into thinking that it was a socially acceptable thing to do, even though it wasn’t legal.”
The U.S. government is conducting literally thousands of investigations. So far it has charged more than 2,230 individuals with pandemic-related fraud charges. Despite evidence of extensive fraud, the government is downplaying the extent of the loss:
Michael Horowitz, the U.S. Justice Department inspector general who chairs the federal Pandemic Response Accountability Committee, told Congress the fraud is “clearly in the tens of billions of dollars” and may eventually exceed $100 billion.
Horowitz told the AP he was sticking with that estimate, but won’t be certain about the number until he gets more solid data.
The sheer magnitude of the fraud – and the incompetence to prevent it – is hard to fathom.
In the haste, guardrails to protect federal money were dropped. Prospective borrowers were allowed to “self-certify” that their loan applications were true. The CARES Act also barred SBA from looking at tax return transcripts that could have weeded out shady or undeserving applicants, a decision eventually reversed at the end of 2020.
“If you open up the bank window and say, give me your application and just promise me you really are who you say you are, you attract a lot of fraudsters and that’s what happened here,” Horowitz said.
The Small Business Administration Office of Inspector General has 80,000 fraud leads, a workload that will take 100 years to investigate. The U.S. Treasury has a “Do Not Pay” database of people and companies the federal government does not want to do business with, including debarred contractors, fugitives, felons or people convicted of tax fraud. The government didn’t use it in approving loans or handing out relief funds. The government didn’t even bother to check to see if applicants were a real business and whether multiple checks to multiple companies were sent to the same address (or whether a business was registered at that address).
A 2022 study from the University of Texas at Austin found almost five times as many suspicious Paycheck Protection loans as the $20 billion SBA’s inspector general has reported so far. The research, led by finance professor John Griffin, found as much as $117 billion in questionable and possibly fraudulent loans, citing indicators such as non-registered businesses and multiple loans to the same address.
The AP details a sordid tale of graft and incompetence that cost taxpayers hundreds of billions of dollars. The article goes on to describe fraud in unemployment compensation, fraud in Paycheck Protection Loans, prisoners getting checks, etc. The government admits the loss was huge. Private estimates, such as the University of Texas, believe the government’s estimates are too low by multiples of three, four or five.
Here is what the article didn’t say: Even those private estimates are far too low. The AP estimates $403 billion was stolen or misspent, just 10% of the total spent. The only fraudsters caught so far seem to be the incompetent ones. The really good ones have probably covered their tracks better than others. Then there’s the really bad news: even the relief aid to legitimate companies, who are not accused of fraud, were a colossal waste of taxpayer resources. Of the $4.2 trillion in Covid relief aid, the amount of unnecessary waste, fraud or abuse is probably pretty close to $4.2 trillion.